Facts of the Case

A complaint was filed by CA Aditya Aggarwal, partner of M/s Aggarwal & Rampal, Chartered Accountants, Delhi, against CA Sanjay Bhatia, partner of M/s R K Dudeja & Co., Chartered Accountants, New Delhi. The complaint related to the statutory and tax audit of M/s Narula Corporate Relocation Services Private Limited.

The complainant was appointed as Statutory and Tax Auditor of the company for the Financial Years 2016–17 and 2017–18 and was further re-appointed for a period of three Financial Years from 01 April 2018 to 31 March 2021. Despite such re-appointment, the Respondent accepted appointment as Statutory and Tax Auditor of the company for the Financial Year 2018–19 without first communicating in writing with the complainant.

It was further alleged that the appointment of the Respondent was made in violation of Sections 139 and 140 of the Companies Act, 2013, as the complainant had never resigned nor was removed in accordance with law. The Respondent also issued the Statutory Audit Report for Financial Year 2018–19 and signed the financial statements on 28 June 2019, prior to completion of lawful appointment formalities.

Issues Involved

Whether the Respondent accepted statutory and tax audit assignments previously held by another Chartered Accountant without prior written communication, whether he failed to ensure compliance with Sections 139 and 140 of the Companies Act, 2013 before accepting appointment, and whether such conduct constituted professional misconduct under Items (8) and (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949.

Petitioner’s Arguments

The complainant contended that he never resigned as auditor of the company and that the Respondent accepted the audit assignment without any written communication or no-objection. It was argued that the Respondent failed to verify whether statutory requirements for removal or resignation of the existing auditor were complied with.

The complainant further submitted that acceptance of audit and signing of financial statements before valid appointment was completed amounted to serious professional misconduct and violation of ethical standards.

Respondent’s Arguments

The Respondent submitted that he was introduced to the client through a professional colleague and that he was assured by the company’s directors and a fellow professional that resignation and no-objection from the complainant had already been obtained. He contended that he acted in good faith on such assurances.

The Respondent admitted that he did not independently verify compliance with Sections 139 and 140 of the Companies Act, 2013 and that he failed to communicate in writing with the complainant before accepting the audit. He also placed on record an apology letter admitting negligence and sought leniency.

Court Order / Findings

The ICAI Board of Discipline examined the complaint, written submissions, statutory forms, audit reports, board resolutions and oral submissions of the Respondent. The Board observed that Item (8) of Part I of the First Schedule mandates two essential requirements: communication must be prior to acceptance of audit and must be in writing. Both requirements were not fulfilled by the Respondent.

The Board further observed that under Sections 139 and 140 of the Companies Act, 2013, removal or resignation of an auditor before expiry of term requires strict statutory compliance. There was no evidence on record to show that the complainant had resigned or that lawful removal procedures were followed.

The Board noted that the Respondent issued the audit report and signed the financial statements for Financial Year 2018–19 even before formal appointment was completed, which further aggravated the misconduct. The Respondent’s admission of guilt and apology were also taken on record.

Important Clarification

The Board clarified that the incoming auditor has an independent and non-delegable duty to verify compliance with statutory provisions governing appointment and removal of auditors. Reliance on assurances of clients or fellow professionals does not absolve responsibility. Acceptance of audit without prior written communication and without ensuring compliance with Sections 139 and 140 constitutes professional misconduct.

Final Outcome

The ICAI Board of Discipline held CA Sanjay Bhatia (M. No. 523817) Guilty of Professional Misconduct under Items (8) and (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949 read with Section 21A(3).

By order dated 17 December 2023, the Board imposed a fine of ₹35,000 (Rupees Thirty-Five Thousand only) on the Respondent.

Source Link- https://www.mytaxexpert.co.in/uploads/1768899073_CA.AdityaAggarwalM.No.0515644DelhivsCA.SanjayBhatiaM.No.523817NewDelhi.pdf

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